I got it wrong. Chances are good you got it wrong. Even Nate Silver was way off. As I write this, the stock exchanges are recovering from last night’s panic, a plunge so deep, the NASDAQ and S&P 500 exchanges briefly halted futures trading. The Dow went down as much as 800 points before recovering to a mini-rally of 200+ points as of this writing. We don’t know exactly what will happen with the equities markets, but we can at least start to read the tea leaves as to what a Trump presidency might mean for real estate fundamentals in the United States. As I mentioned above, I got it wrong with regard to Trump winning the GOP Primary. And the Presidential Election. So take these forecasts with a grain of salt. This article doesn’t seek to understand a Trump victory or make any value judgments from it, but rather to anticipate risks and opportunities as viewed by the macro markets.

1. Expect the Unexpected
Look, no one expected Donald Trump to make it this far (except Donald Trump). And to be perfectly frank, no one really knows what to expect from a Trump administration (except for Donald Trump). Trump has never held elected office. He has no political history from which to glean clues as to how he will govern. He has made some fairly grandiose claims as it relates to his proposed policies, but he has walked some of them back. He’s been a Republican all of five minutes, and an economic conservative for some time less than that. He traffics in his own unpredictability as a strategic advantage.

“I will tell you at the time. I will keep you in suspense,”

Trump has led a private organization of which we have little understanding, and only anecdotal understanding from people both extremely complimentary and highly critical, of his leadership style and decision-making. We haven’t seen his tax returns. Trying to predict Trump’s economic agenda, his priorities, and his plans would be an exercise in futility. Trump may lead as a far-right economic conservative. He may put together a centrist coalition of to further moderate economic policies. No one knows. What we do know is the team of advisers he presented in August: (See original Vox article here):

Tom Barrack, Colony Capital
Andy Beal, Beal Bank
Stephen Calk, Federal Savings Bank
Dan DiMicco, former CEO of Nucor
Steve Feinberg, Cerberus Capital Management
Dan Kowalski, deputy policy adviser for the Trump campaign
Howard Lorber, Vector Group
David Malpass, Encima Global
Steven Mnuchin, Dune Capital
Stephen Moore, Heritage Foundation
Peter Navarro, University of California Irvine
John Paulson, Paulson & Co.
Steve Roth, Vornado Realty

These aren’t particularly a wingnut gallery of folks, but there’s also no telling whether Trump actually utilizes these people or will listen to them if he does. Until and/or unless financial markets develop a sense of predictability or at least familiarity with Trump, expect them to react with caution, which could tighten up lending and investment.

2. Expect a Flight to Quality

When there’s a potential disturbance in the force, most capital will revert to the perceived least risky place to park their lightsabers. If you have an ownership or leasehold interest in Class A real estate in gateway markets, things should be pretty solid for you right now. If you’re holding secondary or tertiary product, the going may be a little rockier. We’ve already seen a huge demand from foreign capital for Main and Main assets with credit tenants Check out the all-foreigner bidding war for Foxhall Partners’ H&M anchored Georgetown project here and residential as the line around the block for Eastbanc’s new megadollar West End condo project. The upside here if you don’t own theses assets? There may be some great opportunities to pick up bargain assets in the neighborhood that’s next up at bat or get into projects at preferred terms.

3. Any chance for a near term fed hike is shot. Or Not.
Of course, with all this uncertainty, no Federal Reserve in its right mind would risk a rate hike, you say? Not so fast, according to 85% of 62 Dealers and Analysts polled by Reuters. The Wall Street Journal Disagrees but there are a number of caveats there which suggest a rate increase is still likely. That said, there’s not a direct link between the Fed rate and Mortgage Rates. There is a direct link between inflation and mortgage rates. If the expectation for inflation (outside of coastal real estate prices and well cared for air cooled Porsches) increases, the likelihood that mortgage rates would move significantly and decrease consumers’ house buying power could be material. Prior to the market rate close on November 9, REITS were moving negative relative to the market with the expectation that a fiscal stimulus coupled with a tax cut could drive deficit spending and inflation

4. Don’t look for a Brexit-like Real Estate panic
Immediately post Brexit, you saw panicked investors fleeing properties in London and doom and gloom sentiment on the property front throughout, with the ensuing arrival of foreign grave-dancers looking for bargains. We’re likely at the end of a boom cycle in many markets in the US as we’re nearing the edge of affordability in San Francisco, New York, and Washington D.C. (Similar trends are happening throughout the developed world) on the SFH side, and sky high rental rates on newly built apartments in gateway cities are running into a huge amount of new supply. With permitting activity and deliveries set to slow down, expect a soft landing on both fronts. Retail, which has already been battered by the Amazon-ification of consumer goods, will likely suffer outside of high density environments and a disruption in the small business lending environment may lead to a pull back in leasing activity for second tier retail which may be slightly more hard edged.

5. The chances of a black swan political crisis will be much higher than average
The greatest threat is the one that we can’t see, and there are quite a few blind spots around The Donald. Between the implied and explicit threats to pull out of NAFTA, TPP, and NATO, potential bombshells in his personal financials, coupled with the fact that he is currently ensnared in several civil lawsuits provides a myriad of opportunities for both global and domestic political chaos. Should Trump follow through on mass deportation, building a wall on the Mexican border, or a trade war with China, the unintended consequences could be all over the place. Additionally, while the Republican party did maintain control of the House and the Senate, there’s no guarantee that the Executive and Legislative branches will work well with another as the tension between many establishment Republicans and the Trump camp may create its own internal strife. Real Estate, as my finance professor, used to say, is a derivative product of the overall economy. If any one of these or other events leads to an economic contraction, real estate won’t be a hedge against equities; it will go down with the rest of the ship.

6. It’s not all about Trump
The Brexit situation still hasn’t worked itself out. Indian Real Estate stocks are down close to 15% after the Indian Government’s move to cancel the 500 and 1000 Rupee notes in an attempt to curb black money running rampant in the sector. Italy, France, and Austria all face upcoming referendums to leave the EU. Given potential disruption in foreign markets, capital may continue to seek perceived safety in stateside assets, shoring up US Real Estate. With the failure of pundits and pollsters to predict the Brexit, the Trump presidency, and even the FARC deal in Colombia, money may elect to ride out the risk in Brooklyn and Capitol Hill as opposed to Paris and Milan.

7. Building materials may get really expensive really fast
Post Trump victory, Industrials and Commodities spiked with the expectation that infrastructure spending is coming. Expect structural steel, concrete, and glass to be able to demand premium pricing, which may heighten the cost of development and construction projects. Hedging against increases here with forward contracts may be a good move here.

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